Going Beyond Swaps: Orderbook DEX and Price Execution | KBW2023

hello um today uh we are going to talk about uh older decks and my name is Ryan Kim uh from hash uh co-founder and partner and uh we have been uh disp from 2016 and we are puring a lot of resource to make a Korean uh crypto Community uh today we're honored to both like uh Ren from um order Network and charge from DX uh please introduce yourselves and what your uh what you're doing in in the company and your role sure uh so my name is Charles I'm the CEO of the dydx foundation uh the dydx foundation obviously works around the dydx community and protocol at the foundation we are working on uh enabling the community uh growing the network of validator for the upcoming DX chain DX is a DEX protocol uh and it's focused since 2018 uh on derivatives uh so we celebrated uh earlier this summer $1 trillion uh volumes trading volumes on the platform so we we definitely have strong signals from the market that there is an appetite for crypto derivative and everyone in the ecosystem is busy at working uh the new generation of the ydx protocol hi uh thanks for having me I'm ran co-founder of orderly Network orderly is a DEX infrastructure um that's focus on order books it's incubated by W Network and near protocol I'm currently live on near and going multichain um happy to be here thank you okay so first question for Charles so uh divice de was like have been like a first place in Auto deex last couple of years so what is a unique proposition why uh diex can be a number one player for last couple of years absolutely I think it comes really in in two fold the technology of the ydx I think has been evolving over the years and keep refining the experience for users to make sure we we we deliver first in-class trading experience for users uh as well as all the ecosystem around the the software itself so uh aex is essentially a marketplace where buyers and sellers can express their opinion and and meet uh meet their their their trade essentially so beyond the the technology itself there is really an ecosystem which you want to keep building and and sustaining and activating uh to provide liquidity so it's really a mix of both um and I think the the focus of the ydx in the very early days on the derivative Market which is 10x bigger than the spot Market uh is is really has been paying off in trying to to always reverse engineering every every decisions in engineering uh when it comes to uh en ambling new features uh making just a seamless experience and an experience indexes which is very similar to uh what Traders experience on on centralized exchanges sounds good so Ren um so order Network positioning is a little bit different from uh other dexes so you're like allowing other people other players open new dexes so you are going to make uh I mean become a kind of foundation of other dexes so how you started this idea and why this will work uh in this market yeah so we're I mean we have a pretty trafi background and then we have experience um about five or six years ago starting a crypto trading company and then later on a centralized exchange and an index called wo and then now so so um throughout these years um like let me we know that liquidity is key right so then as defi is interoperable and um you know I ta for Traders are very different right so then there's the retail traders that prefer something like a Robin Hood or Unis swap there's the prot Traders they go to like interactive brokers they go to dydx um there's institutional traders who want to know who exactly they're trading against so the T are different but they all need liquidity for many different assets right so then this idea of a liquidity layer that's across multiple chains servicing the users on those chains those communities and having the native Assets in spot and derivatives form is kind of what we're going for and to do this in a secure and permissionless way um so we can think of us as trying to be like the decentralized CME where there's many different um Partners on top who can route orders to um to us and we're maximizing for the liquidity that's provided at like the the um the highest efficiency for those people and they can service their Tas uh their Traders whether they're retail or Pros or institutional um and the uiux is going to be different the types of um limits on like kyc or permissionless is also different um and we're kind of the back end for that yeah nice so uh so far still no crypto most of crypto users are using uh a lot of swap or pool based decks so how you can explain like what is pros and cons between uh uh Swap and o de like how can you uh differentiate like old the book sure so the the swaps and and the emm essentially are a fairly recent type of architecture for exchanges historically exchanges where order books and then this Innovation came up with with Unis swap some years ago about automatic Market making via some smart contracts so they they all have uh kind of pro and comes and I think they have also different type of of audiences um amm will be really efficient for the long tail of assets uh so whenever you want to trade assets which have less liquidity uh probably an amm will be a great solution but when it comes to the the core assets of the market such as e for BTC and and many others the order book is really where you find essentially the best price Discovery the best executions of orders and that's where also a lot of the the market was discovered before the the the kind of birth of of the centralized exchanges uh the the kind of abits of the market is using order book type of architectures on centralized exchanges uh and and uh order book architectures is is really what what essentially brings the best liquidity on on this on those trading Pairs and the best execution and that's why we we we keep seeing and we will keep seeing more and more uh volumes growing in this direction and I think it's also a strong signal that our industry is kind of maturing and everyone gets more and more specialized on different type of audience and different type of markets and users and and seeing the other books kind of doubling down and and also amm growing in maybe new markets or different type of of assets more longtail is a is a good signal that everyone gets more more specialized and and every audience will find some people which are focused on their on their need so uh in terms of that like know definitely uh Li be quite important uh depend depending on the uh pair so any strategy and any uh uh marketing you guys are specifically doing for uh like making more more uh liid in DX so you say it again so uh any specific strategy and marketing plan uh so for the owering more uh liquidity so the the liquidity come from uh the technology one on the first place if you got a great engines behind you're going to essentially make the best of the liquidity available on your Marketplace and there is also as I was mentioning earlier this two aspects the technology where you can keep optimizing essentially the asset available within your platform as well as thinking of your ecosystem thinking of your ecosystem on how you can build uh uh rewards when you when you or incentive for Market making for example and making sure they adjusted uh in a in a dynamic manner so they get really optimized and you you're not overpaying for some for some Services um but there is also the experience for for the users for the other side of the trade the retail users making sure the user experience is really kind of um abstracting the complexity of the underlying technology uh so for example uh if you look at the the test net of the dydx version 4 the upcoming version of the dydx um chain and and protocol uh users can come with any wallet you can come with metamask even though you will you will be on the top of a cosmos based blockchain you can come with any wallet of your choice and the product team have been really obsessed I would say in making sure that there is as much complexity abstraction as possible so the user experience is smooth and essentially you become a venue which is very easy to to to uh to start with as a new user so you want to look at the both side of the uh of of the spectrum of of participants in your Marketplace and making sure that the market makers get the right um the right uh infrastructure with great apis with great matching engine uh as well as on on the maybe the more retail side of the users having a very smooth and easy uh easy experience so that you can keep uh you can keep growing growing your liquidity overall yeah Ren also similar question so um now like uh swab is still the major part so what what is your unique uh strategy to take more market share against the swap um yep so um so liquidity there's two sides right there's the maker side and there's the the taker side um like Charles said amm have done a great job on the spot for long tales and also for um for stable coins I'd say right that's really good use case for amm but for the majors and for derivatives um we think I think order books are the way to go um and so for the maker side um I mean there's two spectrums now so there's the retail makers which are the amms right and also the professional makers those are the guys quoting on all the order books and centralized and and decentralized exchanges I think uh in an optimal World it'll be a mix of two right it'll be the pros we're always going to do this anyways um and then it'll be the people who want to participate in Market making right hence um uh retail in whether in amm form or in some other form that's that some of the dexes are gravitating towards you already like like Trader Joe with their more specialized like like uni V3 Trader Joe and that's making the the retail LP um uh functions look more and more like an like an order book but not but not exactly so it'll be this this range of um people on the making side that'll enhance the liquidity for all assets right I'm a believe and that so we'll have some products that facilitates that for both the pros and the and the retail and then on the taker side it's about people who want to take liquidity um it's it's more professionals um leverage Traders on the per side and then the the the spot side will be people who are you know either aping into into allcoin or or trading um you know a similar way to the pros on on spot so we believe that um we are trying to empower the the guys who are building on top of us to really monetize for their user segment whether it's retail whe whether it's it's Pros whether it's institutions again they have different needs uh in terms of UI and compliance and such and they'll be optimizing for for those user base and we'll we'll support that for them to do it we're we're not trying to build like a one- siiz fits-all product for for the the the end user uh we're just trying to provide the infrastructure and liquidity for the to empower them to do so yeah and then they they in turn bring in the liquidity on the terer side maybe to keep building on the on the question as well one way to build build and and maintain and grow liquidity is also thinking outside of your infrastructure itself uh so there is this probably directions of the market in my in my opinion where we're going to see centralized exchanges starting to be gateway to defy and if your your protocol and your stock is facilitating these kind of Integrations you also bring liquidity from not only the marketplace but from from kind of accelerating the the the new users and and making them coming to to the platform so in this kind of centralized defi if you can say so there is a a great opportunity for the people who prepared for that to essentially facilitate and I believe a lot of the centralized exchanges will become a little bit like like what the banks are today so if you go to your bank today their Core Business is deposit so you give them your salary every month they make a little bit of money with with that and then they they start to sell you insurance and this insurance is actually coming from an insurance company it's not them as start to give you access to stock market and they give you access via a partnership they have with a a prime broker or or an exchange so we see in traditional Finance essentially Banks which are gate away to finance and they bender and package many different offers so to come back to your questions how do we bring possibly more more liquidity is by being ready to essentially embrace the evolution of the industry and getting ready to welcome and and and easily offer Integrations with with centralized centralized exchanges overall to try to build on this opportunity or kind of Market morphing into into more uh having centralized uh players being a gateway to defy another and maybe my my my last point on this one the way to bring liquidity is also to bring very interesting products and there is already within the ecosystem of the ydx um groups which are working on permissionless markets so allowing the users to express their opinion in a very smooth and and easy way on what kind of asset they would like to trade and how do they want to trade it and I believe if you want to compete in crypto if you just digitalize whatever is available today there is only there will be always be a cap in your in the growth of your project and it's it's much more uh possibly a moonshot but also much higher potential to essentially design a receipt design design a platform which allows the market to express themselves and to help the market design on your platform products which exclusive ly exist on blockchain where the competition does not exist offchain and we've seen that a few times in our industry of crypto when actually the product which have been massively successful were invented with ingredients exclusively coming from Krypto itself and with these permissionless uh Market capabilities you you essentially also offer potentially explosive growth of liquidity and explosive growth of attention and and and and user Migration by by letting the market Express what do they want to trade and giving them the right platforms the right risk management uh the right governance around around such opportunities to make it like a safe and healthy Market but creating these new and blockchain exclusive markets where the competition is is very minimal and then the projects can essentially benefit from that in a kind of exponential manner yeah totally agree with that and I think no still the user experience is like very messy so uh know getting into through uh like a wallet uh by metamask and other wallets are still very uh big huddle for retail users so from exchange defy and all uh defi exchange side any effort to improve the user experience right yeah yeah totally agree um it's it's a pain to use most um defi apps starting from the first step on the wallet LEL um so we're not solving for that piece because there's a lot of people solving for that account abstraction I think we can we'll see a world later where um the access points I mean Charles mentioned this like centralized exchanges uh Prime Brokers Banks um Amazon who knows right they're they're going to optimize this piece and once once they come in is kind of where we want to be or the the applications built on top of our our liquidity layer um we're optimizing for I me in the previous panel they they used the term that um it's chain agnostic right so we're we're Believers in the multi-chain future and and that users should not have to bridge assets over and over and experience rap tokens and all the risks associated with that um they should be dealing with Native tokens um they shouldn't even see the chains um so so that's what we're building around um so that users can deposit from some chain from one chain um and then withdraw from another chain in a in a smooth way that's secure um and it's it be the native asset not not some wrapped asset uh kind of similar to centralized exchanges today right because every chain will have their set of native assets and if we believe that there's going to be multiple chains in the future those native assets you want those assets to be um you know native the native assets to be utilized by the user and not not some sort of a wrapped asset so um yeah so we're optimizing for that piece while the the guys the wallets and the and the the custodians are optimizing for the for the gateways yeah yeah maybe we discussed earlier about uh CI being a gateway to defi uh I mentioned earlier as well uh kind of integrating with all kind of wallets should your wallet be an evm based wallet should you be be coming to the ydx with a a cosmos native type of wallets making sure it's really abstracting all the complexity and the EV Lifting for the users that's really the I think the core uh the the core the core possibilities to to en the user experience in general and also exploring mobile mobile apps and making sure the mobile apps improve having a light version of your your product having a Full Features version of the product uh but I think as I mentioned earlier if you can integrate and if you can become some kind of public goods for for your your very specific uh kind of uh of uh of of trading experience then you will let a lot of innovators coming and not everyone will need the same experience also so obviously an Asian type of Traders and maybe a European type of Traders will look for different experience sometimes different colors also within the trading experience and within the trading uh user user interface so you have to let also bring the the right infrastructure the apis so people can come and and integrate and and and provide to Their audience what what they need and and as you mentioned earlier letting the people in charge of of Integrations and and kind of user relationship uh doing the best of their job they're really good at that and and and supporting them with that with a neede of integration and being some kind of public good like uh like we are a layer one if you're if you're a becoming a layer one like dydx has has voted on Sunday evening the community voted on migrating to Cosmos so it's a very strong uh strong signal for all the all the participants in the dyd ecosystem that this is happening and the dyd exchange is is upcoming yeah so that is very big move so moving to cosos chain will be a like uh will'll provide a totally new environment for users so what's your view on the inter interoperability so once you uh build a cosmos chain then you naturally you connected to other chains through IBC also like now it's the multi chain environment is like uh totally different from like uh three two three years ago so what what you're preparing for the interoperability to invite more liquidity from outside to Cosmos chain as a derivative exchange uh and derivative protocol dydx does not have the same needs of interoperability as for example a lending protocol it's a very different type of setup uh people enter the protocol and and start with usdc and then they start to express uh their opinion on on E for or BTC or or many other trading pairs so it's not the same type of challenge as it is for some other type of Def applications uh moving to Cosmos means also we can benefit from the cosmos ecosystem usdc is coming natively uh on on the cosmos ecosystem so that's a very strong uh piece of support for for dydx migration to Cosmos but there is also if you kind of reverse everything and start to think from the user and not from the the blockchain itself what does it mean for user to to have a a multi chain experience and maybe for many users is actually having integration with custodians Integrations with exchanges centralized exchanges so you can withdraw and get essentially your cross chain uh experience starting not only from the from the the blockchain stock but from uh from other participants of the of the market so centralized exchanges so we don't have the same challenge as other in in terms of connectivity with other chains uh a core asset of the D ecosystem usdc is native on Cosmos and there is a lot of work an appetite from centralized exchanges to essentially enable kind of withdraw an on and off ramp from The dyd Exchange via some centralized centralized type of of infrastructure and overall if you look at numbers you can fairly easily decide where you want to focus your your uh your your efforts and attention uh to provide and move the needle the most Ren so um how I want to know your opinion about like what is the the biggest uh obstacle in U Learning a DEX on Multi chain so what's your big challenge in multi chain yeah so um there's different security risks right uh for each chain um you know like we know about like the multi-chain hack with Bridges so then we we're not uh a big fan of moving assets across chains but just more on the messaging side um so we we want like in our in our next latest design the the assets for each chain will sit on the native chain it will not need to be bridged to a new chain that we have we will have a a chain to settle to settle things um where the trades are settled per block but that's just a ledger all it is is a ledger and it's saying every users has this much balance and made this this many trades and can withdraw x amount uh from whichever chain that they want to but the assets actually sit on those chains um and some information like the deposit withdrawals will get pass to The Ledger via um in Via Crossing Pro uh messaging protocol um and that's kind of the design so uh so there's less risk in terms of moving assets around but it's more just moving messages around um and then the the assets are secure on on those chains right and so this this makes it easier for um because every there's so many chains out there and they're they're they're kind of fighting for users and Builders and those those guys uh and they have their core fan base right and those users they want to stay on that on that chain uh uh likely and and and the and the the chains will try to support them to do that so we want that to happen right for those Builders um let's say quick swap on polygon or Trader Joe on on avax right now there's four builders on on um four four builders on uh orderly So currently it's on the it's on near right so there's ref Finance that's a very native near amm uh and there's two centralized exchanges this actually plays into what Charles said um they actually want um dexus and a lot of centralized exchanges are seeing kind of the future as more and more defi so there two of them actually built well one is one is woo um our sister company the other one's btsc it's a midsize centralized exchange their Dex just launched on on orderly um so so there will be different people who are on these chains who want to build and they want their assets they trust those chains they want their assets on those chains and they want to interact with those chains and their users to interact with it and we want to allow that right and not even they don't have to feel that we have this Ledger or any sort of bridging of information in the background yeah my last question is like uh compliance so recently like uh know SEC and government is very sensitive about centralized exchange also like they're caring about like who is building this decks or not so what's your uh know how you react this kind of uh like action from government regulator I think it's very important and it's one of our responsibility as a a defi industry practitioner to stay in close conversations with Regulators explaining what is Defi and demonstrating what is defi not only explaining but demonstrating showing that actually within the the road map and the mission of regulators which are maintaining assets of the users safe keeping a healthy Market Market having some some safety and auditability of of of of marketplaces all of this is naturally built within defi defi stacks for the for the most part so I think demonstrating uh that the agenda of regulators and and the the capabilities of defi have a lot of overlap and and actually it's I think we we're going to see more and more and we start to see that with some central banks starting to leverage defi within their cbdc experiments that the the the concept of defi will will really keep progressing within the traditional Finance space and eventually totally morph um we we had good news last week from um from Regulators in the US um on the UN Unis swap case explaining and essentially stating that the software itself when when there is a permissionless market capability is not responsible necessarily in in the full extent to to what this uh this new market uh launch was uh was eventually delivering so regulations are progressing it's important to keep in in in close conversations with regulators and keep explaining what is defy but I think the agendas and the and we are definitely meeting uh but it's not always easy when we have uh up and downs in the market when we have also um Bad actors which eventually collapse and and damage our industry so we need to be patient and Relentless as well as resilient but we're definitely progressing so I'm very optimistic R what's your thought about current regulation situation yeah I think DX as the Forefront of this and Unis swap so I mean you're doing the whole industry a public good and we look to your guidance on that for us I mean we never we didn't try to position to be a c consumer facing um protocol so we are to be right so we are facing the the the builders who are uh making their lives easier to get our liquidity incentivizing it to service their end users so I mean it's our hope that like the internet um Regulators regulate um the apps and not the protocol um so um that's what that's kind of what we're we're hoping for um and then the apps on top um they have different levels of of risk uh that they want um in terms of servicing their users and we can see uh uh and we can see a future where there's will be separate instances of order books um hopefully only two that Services people who want really strict uh compliance requirements like institutions that need to only interact with um specific counterparties and then there's like one for for the general population yeah yeah before wrapping up please share like know your next one to two years uh next steps of dox and orderly Network so the dydx agenda is extremely loaded for the coming months uh the community voted on the migration from uh the ethereum stock to the uh Cosmo stock so the dyd exchange is about to ignite and that's that's really exciting for for a lot of people there will be a bridging chapter for users to bridge their dydx tokens uh from ethereum to the cosmos chain the dyx chain and and and the the dyx token on the on the dydx Chain will become a utility token uh used to essentially secure the chain uh and and make sure that all the all the chain is is properly functional so that's that's a very busy schedule until the end of the year so we are very excited about that and and after that there is within the grants Dao and and within the ecosystem a lot of people working on very exciting things such as permissionless Market I mentioned them a little bit earlier and and it's it's really um bringing tools for uh innovators and entrepreneurs to express uh their their ideas and and and and show show to the world what what they believe the new uh chapters of dii are so that's a very exciting program yeah for us we just want to keep shipping ship fast um on this multi-chain future and we're trying to decentralize more and more pieces of the operation and we have to boost for liquidity um uh the matching engine isn't uh fully decentralized so we want to decentralize everything and our our liquidation system is decentralized currently um so uh just keep shipping and and uh get as decentralized as possible thank you thank you for par participating our discussion yeah thanks for us thank you thank [Music] [Applause] [Music] you